Corporate America’s Chief Critic, Carl Icahn, Gets His Comeuppance

Francis deSouza, the chief govt of the biotechnology large Illumina, didn’t know what he was in for when he resisted Carl Icahn’s demand in March for 3 seats on the corporate’s board.

Mr. Icahn, the billionaire investor, employed a personal investigator to dig up grime on Mr. deSouza. He wrote letters to Illumina shareholders lambasting Mr. deSouza’s management and publicized particulars of his divorce. By June, Mr. deSouza and the chairman of Illumina had resigned. One of Mr. Icahn’s allies joined the board.

Such bare-knuckle techniques have made Mr. Icahn the nightmare of many a chief govt and altered the destiny of a few of America’s most iconic firms, together with Apple, RJR Nabisco, Blockbuster and Netflix.

But in May, Mr. Icahn, 87, discovered what it’s wish to be on the receiving finish when Nathan Anderson, a 39-year-old brief vendor, printed a report questioning the setup at Icahn Enterprises, his publicly traded firm. Mr. Anderson recommended that the corporate was paying shareholders a dividend it couldn’t afford. Earlier this month, Icahn Enterprises succumbed to the stress, slashing its dividend by half.

“It is very, very embarrassing for Carl because this guy beat him and beat him at his own game,” stated Mark Stevens, the creator of a 1993 e book titled “King Icahn: The Biography of a Renegade Capitalist.”

Mr. Icahn scoffed at comparisons between himself and Mr. Anderson, whose short-selling agency Hindenburg Research has made news lately for its assaults on firms like the electrical car maker Nikola and the Adani Group, one among India’s strongest conglomerates.

“He goes out and scares the little guy into selling stock at the worst time and taking big losses,” Mr. Icahn stated throughout one among a number of telephone interviews over the previous month, referring to on a regular basis traders. He stated Mr. Anderson didn’t name him earlier than publishing the report, denying him the chance to current his facet of issues.

Short sellers borrow inventory held by massive traders and promote it within the open market, betting that its worth will fall. If they wager proper, they’ll purchase the borrowed shares again on the cheaper price, return them and pocket the distinction. Hindenburg publishes analysis supporting its brief bets.

Mr. Icahn stated he buys and holds shares for years and makes modifications from the within. “I’m not telling you I’m a charity organization,” he stated. But “what we do is very admirable.” In a current earnings launch, he stated that traders who purchased his firm’s inventory in January 2000 and reinvested their dividends would have achieved much better than any inventory index. (As of July 31, he stated, his traders would have an annualized return of 12.8 p.c in comparison with 6.9 p.c for the S&P 500).

Mr. Icahn was one of many first company raiders — now often known as activist traders — who purchased stakes in firms and pushed administration to make modifications. His predominant car was a hedge fund till 2007, when he folded it right into a publicly traded entity he additionally owned. The new entity, Icahn Enterprises, diversified past activism and holds shares, actual property and different investments.

Mr. Icahn, who mates and acquaintances say usually drinks a martini or two in between haranguing chief executives late at night time, found his urge for food for rattling firm cages within the late Seventies.

Born in Far Rockaway, Queens, in 1936, the one youngster of a cantor at a synagogue and a schoolteacher, Mr. Icahn attended Princeton University, the place he labored within the eating corridor to assist pay for his tuition. At his mom’s urging, he attended New York University’s medical college earlier than dropping out. After a quick stint within the U.S. Army, he went to work on Wall Street. In 1968, he began his personal funding agency with a mortgage from his uncle.

One of his first successes got here when he pushed Tappan, a family-owned firm that made ovens, to promote to a bigger competitor. The marketing campaign made him roughly $3 million.

He grew to become a family title within the Eighties for his makes an attempt to take over a few of that decade’s most distinguished firms. In 1985, he purchased Trans World Airlines. His tumultuous reign as chairman started with battles with the flight attendants’ union that grounded the airline for weeks after they went on strike. It ended, largely, when T.W.A. declared chapter in 1992. Along the way in which, Mr. Icahn piled debt on the corporate, which allowed him to take out money and generate a revenue for himself.

One of his massive victories concerned RJR Nabisco, the meals and tobacco large that he pushed to separate into two starting in 1996. When the corporate ultimately spun off its meals enterprise, Mr. Icahn pocketed $884 million by the point he offered his inventory in late 2000.

In 2011, he started a multiyear assault on the drug firm Forest Labs, accusing it of destroying shareholder worth. He ousted the chief govt and pushed for a sale. Shares of Forest Labs tripled throughout that point, netting Mr. Icahn about $2 billion in revenue. He additionally efficiently pushed Apple to purchase again its inventory in 2013, which made him $1.8 billion by the point he offered his stake.

Mr. Icahn estimated that his activist campaigns at a dozen firms, together with Apple, eBay and PayPal, Forest Labs, Herbalife and Netflix, and have helped generate $300 billion in further worth for the shareholders of these firms. The bulk of it got here from Apple.

Forbes estimated Mr. Icahn’s fortune at about $18 billion earlier this 12 months, though that quantity has been lower roughly in half for the reason that Hindenburg report.

Still, Mr. Icahn’s bets haven’t at all times labored out for him or the goal. When he joined the board of Blockbuster Video in 2005, John Antioco, then the chief govt of the corporate, was stunned at how little Mr. Icahn knew concerning the enterprise.

“Once Carl catches the bus, I’m not sure he knows what to do with it,” Mr. Antioco stated. Still, he stated Mr. Icahn supported his plans to maneuver Blockbuster’s enterprise on-line. In 2007, after a battle over compensation, Mr. Antioco resigned. He stated he was stunned when Mr. Icahn introduced in a brand new chief govt who refocused on retail shops. Blockbuster declared chapter a number of years later.

Mr. Icahn, who referred to as Blockbuster his “worst investment ever,” stated he blames himself for permitting the brand new chief govt to concentrate on retail. “We almost made it great.”

He has additionally misplaced cash on some current activist campaigns. The inventory of Xerox, the place he’s the most important shareholder, is down since he took a stake in 2015. International Flavors & Fragrances is buying and selling at roughly half the value that it was when he purchased shares in early 2022. Illumina, which is now looking for a brand new chief govt, is down about 20 p.c since Mr. Icahn started his marketing campaign.

At the identical time, mates stated that cash just isn’t what drives Mr. Icahn.

“It sounds corny, but money is just not that important to Carl,” stated Buzzy Krongard, a director at Icahn Enterprises and a longtime pal who overlapped with him as an undergraduate at Princeton. “It’s winning that’s important,” Mr. Krongard stated. “Carl enjoys the battle itself.”

Often, the battle extends past activism. In 2003, the true property developer Harry Macklowe purchased the General Motors Building in Manhattan for a record-setting worth of $1.4 billion. Mr. Icahn, a pal of Mr. Macklowe, had a lease at a below-market price for one of many prime flooring of the 50-story constructing that was about to run out.

When one of many brokers for Mr. Macklowe’s agency approached Mr. Icahn a couple of new lease with greater lease, he yelled on the dealer to go away his workplace. He wouldn’t interact in any conversations with Mr. Macklowe or his group, in response to two folks with data of the negotiations. It was solely after they started giving excursions to potential tenants and lined one up that Mr. Icahn agreed to barter a brand new lease.

An evening owl who performs tennis virtually on daily basis, Mr. Icahn stated he normally rises earlier than the inventory market opens however is thought to work previous midnight. Employees are identified to maintain notebooks subsequent to their night time stands in case their boss calls after they go to sleep, though Mr. Icahn stated he hardly ever calls workers after midnight.

Friends and associates of Mr. Icahn stated he bets on every part from poker video games to chess matches. Once, when he was in Las Vegas, he even wager one million {dollars} that the San Francisco 49ers would win the Super Bowl. (They received, netting him a number of hundred thousand {dollars}). But it’s the high-stakes betting on firms — and the possibility to affect their future — that he finds thrilling, they stated.

Mr. Icahn and his 44-year-old son, Brett, are controlling shareholders of Icahn Enterprises, with 85 p.c of the inventory. Outside shareholders — largely retail traders — personal the remainder. In 2020, Mr. Icahn stated in regulatory filings that his son would succeed him by 2027 or sooner, however he stays the face of the corporate for now.

In May, Hindenburg printed analysis suggesting that Icahn Enterprises was valued extra extremely than its friends as a result of it paid a profitable dividend to shareholders regardless of reporting quarterly losses, which saved traders shopping for the inventory. “Icahn has been using money taken in from new investors to pay out dividends to old investors,” Mr. Anderson wrote, evaluating it to a “Ponzi-like economic structure” that was unsustainable.

Mr. Anderson additionally recommended that if Icahn Enterprises stopped paying dividends, the worth of its inventory would fall, which meant that Mr. Icahn would battle to repay billions of {dollars} he had borrowed towards his private stake within the firm. That might set off a downward spiral. Mr. Anderson additionally accused Mr. Icahn of inflating the worth of his personal investments.

The Securities and Exchange Commission and Department of Justice began investigations into Mr. Icahn’s enterprise practices after the Hindenburg report.

The inventory of Icahn Enterprises fell by greater than 50 p.c after the Hindenburg report, compelling Mr. Icahn to renegotiate the phrases of his loans in July, which “significantly diffused” the consequences of the report. Earlier this month, the corporate additionally lower its dividend by half.

He lately acknowledged that his agency’s brief wager towards the S&P 500 has price him roughly $9 billion over roughly six years and advised traders he would refocus on activism.

Mr. Anderson stated that Mr. Icahn might nonetheless battle to repay his loans and refinance among the debt given the excessive rates of interest. “The next chapter of his financial high wire act will be difficult.”

Mr. Icahn stated greater charges are immaterial to his firm’s efficiency. He is as decided as ever to make use of his billions of borrowed cash to go after his subsequent targets, utilizing his activist’s intuition honed over an almost five-decade profession.

When he sees a doubtlessly profitable funding, “you take as much money as you can that’s available and buy that stock as far as you can go,” Mr. Icahn stated. “That’s where you make the money.”